How should I spend my raise?

by Erika Torres

I got a promotion!!!

And I was like:

And I totally celebrated with ridiculous amounts of wine.
Because it’s not every day you get aΒ  promotion with a big fat raise!

Then reality sunk in…

What should I do with all this extra money?

In told, after taxes are taken out, it won’t be like a ton of extra money, but it’s still a pretty big push for us.

I received a 10.5% increase in salary. Considering my annual review gives me a 3% increase, this put me like 3.5 years ahead of schedule!

I felt like I had a pretty respectable salary before, and now I feel like I’m inching toward the big top! I really see myself moving on up in this organization. Not only do my supervisors love me (I think it’s cause I’m fresh young blood), but there’s also a lack of leadership among my older co-workers in my department–leaving lots of growing room for me!

Here are my options:

Pay down debt faster

I still have a little over $21,000 left in student loans. Despite the bumps we’ve had with our budget the past couple of months, I have still paid extra toward my loans every month, even though it’s not as much as I would like. I would like to at least make a double payment each month.

Increase retirement

I currently contribute 3% toward my 401K (plus a 3% company match) for a total of 6%. I also have a rollover IRA from my previous jobs which has about $7,000 in it. Eric and I opened Roth IRAs, but have only contributed $100 each. I know we need to start upping this amount.

However, we both will receive pensions when we retire and this will contribute a hefty portion of our retirement savings as well.

Save, save, save

We have a LOT to save for. We want to buy a house by the time Eric is 35, this would require A LOT of money in savings, since basic houses in our area start at around $400,000 (if we’re lucky).

We also want to buy a new car in the next two years, since who knows how long Eric’s is going to last. And neither of our cars would fit a baby seat–and that will most likely happen in three years or so.


Eric and I have talked a lot about investing and it seems to be a good way to really build wealth. We’ve looked at several companies that offer smart investing, but I’m not sure if we’re ready to take that step yet or if we should focus on reaching some of our other goals first.


I’m really leaning toward doing a combination of the top three. The three goals are to:

1) double my monthly debt payment

2) contribute $100 toward each of our Roth IRAs

3) Increase savings

What would you do with a 10% raise?


babybluewater July 9, 2012 - 9:10 am

Sorry I’m late, just catching up on my favorite blogs now. CONGRATULATIONS on your promotion! That’s wonderful news. It must make you feel great to know you’re valued and appreciated πŸ™‚ Way to go!

Mr.CBB’s Weekly Blog Post Picks June 8, 2012 « Canadian Budget Binder June 8, 2012 - 9:42 am

[…] How Should I Spend My Raise From Shopping To Saving […]

kim June 8, 2012 - 9:31 am

Congrats! This is an example of: β€œI find that the harder I work, the more luck I seem to have.” ~ Thomas Jefferson

One Frugal Girl June 5, 2012 - 7:40 am

I say do a little bit of everything. You can put some away for immediate savings, raise your retirement contribution and leave a little for fun. That way you get the best of all worlds.

Amandalynn K. Sawyer June 5, 2012 - 6:50 am

I agree with Hannah – Increase your savings and bill pay and don’t change your way of life. You will be getting through the rough stuff faster, but won’t notice anything but your balances fluctuating! πŸ™‚ HOW DID THAT HAPPEN!? Oh wait, it must have been my raise πŸ˜‰ hehehehehhe.

Hannah June 5, 2012 - 5:09 am

CONGRATS! The best piece of advice I ever got (from my boss, no less) was never change your standard of living due to a raise. Lie to yourself – tel yourself “what raise?” and stock that money away from yourself. I would agree that you should max out your retirement then double down on your student loans. You have told us multiple times now that you really love your new standard of living and its comfortable for the two of you – so no reason to tempt yourself with things that you know you can live without now πŸ™‚
And CONGRATS again!

Summer June 5, 2012 - 3:48 am

I think that is awesome!!!!!! My suggestions are for you and Eric to take a short weekend trip for celebration, and the rest I would divide to paying down school loans, future car, and future home down payment. Congrats again, I am super jealous. The company I work for has a freeze on annual raises right now (second year) and no immediate promotion opportunities in site. Ugh!

Jai Catalano June 5, 2012 - 3:31 am

Oh how quickly things turn around. Isn’t this amazing??? Party! I would say invest it. I think that is a part of financial building you and Eric are going to want to tackle. However, have a glass of wine or a bottle.

Teacher Girl June 5, 2012 - 3:08 am

Congrats on the raise!! Whatever you decide to do, I know this raise will only help your overall financial security in the long run because you are great with money! =)

RubySongbird June 5, 2012 - 2:08 am

Oh my gosh, congratulations!! If I were you I think I would increase the debt payments a little bit, and put the rest toward your saving goals, like for the down payment on that house!

SavvyFinancialLatina June 4, 2012 - 10:01 pm

Congrats on your raise! Maybe you could split the raise between paying down student and retirement contributions?

B. (Below Her Means) June 4, 2012 - 9:04 pm

You win A GAZILLION points for using the Carlton .gif. So funny! Congrats on your well-deserved income boost.

Jessica @ Budget For Health June 4, 2012 - 3:09 pm

woo woo! congrats! throw that dough at loans, you won’t even miss it. Be sure to take a little bonus out so you can celebrate πŸ™‚

Jordann @ My Alternate Life June 4, 2012 - 11:27 am

Wow congrats that is awesome! if it was me, I’d put most if not all of it towards debt. My number one focus is becoming debt free, so that’s where I’d put it.

Nichole @ Life as a Newlywed June 4, 2012 - 11:08 am

10.5% is AWESOME!! Congrats!

Kathleen @ Frugal Portland June 4, 2012 - 10:34 am

LOVE the Carlton image — and congratulations! Right now, all my extra money goes toward student loans, so that’s how I’d spend it.

Elizabeth @ Broke Professionals June 4, 2012 - 10:34 am

Love the Carlton dance, by the way… AND CONGRATS!!!

What is the maximum company match on your 401(k)? You should be meeting that before you put any of your raise money anywhere else…

And WOW on the housing costs. That’s ridiculous! A $400k house in my area would probably have 4,000+ square feet in a very posh neighborhood with all the amenities and upgrades you could imagine.

Tanner June 4, 2012 - 10:15 am

That is FANTASTIC news! So happy for you. I would definitely say throw it all into debt. The sooner you can be done with that, the quicker you can start building a lot of wealth to achieve your other goals. At the very least, split the added money into debt and savings. Good job, and many, many congrats.

SWR June 4, 2012 - 9:57 am

Yay! That’s good news πŸ™‚

I would probably focus on the student loans for a while; throwing all of the raise at them for a little bit until you get them down to X. Then, I’d spread the amount out between your other goals however you decide to prioritize them.

LifeInTransition June 4, 2012 - 9:42 am

Congrats on the raise! I would do a combination of the goals too. It’s good that you are being proactive with what you’re going to use the extra money for

KendraD June 4, 2012 - 9:26 am

Congratulations on your promotion!

Since my husband is active duty military and we’ve moved a lot (I’ve moved three times since July of 2010) whenever I have been working, we split my money between two things: paying of student loan debt and having money to travel.

Since August of 2010, when we got married, we’ve paid of 4k of credit card debt and 20k of my student loans (yay it’s all gone!) and just over 12k of his loan debt. Once I start my job either mid month this month or beginning of next, we’ll use my paychecks to beef up our savings and finish paying off his loan debt (which barely counts since it’s at a .5% interest rate).

Travel is super important to both of us, and hey we’re living overseas so we’ve got the jump start on getting to cool places, which is why we focus a good portion of my paycheck to that. But we also want to have a pretty hefty savings account when we move back to the US in a couple of years. And no debt, not even nice happy loan debt.

Congrats again on having this “dilemma” of how to spend the extra money!

CeCe @Frugalista Married June 4, 2012 - 8:30 am

Congrats! I’m sure you’ll make the right decision on what to do with it.

Daisy June 4, 2012 - 6:44 am

Congrats on your raise! That’s so exciting! 10% is a big jump, too!

I’d probably do something similar to you with a raise like that, but I’d probably put more toward down payment savings to avoid too much mortgage insurance. Houses in Vancouver are super expensive too so it will take awhile to build up that much money.

jobo June 4, 2012 - 6:38 am

Congratulations!! I want to hear more about your promotion!! Email me!! πŸ™‚ I think your goals are fabulous, smart to start right off the bat so you don’t ‘feel’ the extra money in your paycheck and not want to save it! Easy to fall into!

newlywedsonabudget June 4, 2012 - 10:09 am

I already went ahead and set up 10% of my paycheck to go to direct deposit into a separate account so that I don’t get used to living with the extra money! This way we can split it up from there to go toward debt payoff, savings and IRA’s!

ginna June 4, 2012 - 6:32 am

Congrats! I like your little dance you did. πŸ˜‰

I would do a mixture — definitely put a portion of it in savings since it sounds like there are a few expenses you anticipate in the next few years (and btw your housing market is expensive! eeks!), but then another portion of it I would dump towards your student loans, since the will save you some money in the future.

Either way, what a great raise!!

Michelle June 4, 2012 - 6:22 am

Wow congrats! I would do a mix of saving for retirement and paying off debt.

Peaches & Whiskey June 4, 2012 - 6:12 am

Congratulations on the raise! That’s always exciting when your work is appreciated and rewarded!

My 2 cents: I would want to eliminate student loan debt, so yes, I would agree that doubling down or at least increasing your payments is reasonable. Then, I would combine savings and investing for your future home. While I understand the stock market can be tricky, with the help of a trusted financial planner – investing can be a tremendous form of savings and growth!

Building equity in a home is still a great idea, as long as it is done responsibly! I saved and was able to put 20% down for my first home and it really removes a lot of the burden and pressure of applying for mortgages, reduces your payments (through reduced principle and no PMI), and makes you feel good!

Faith June 4, 2012 - 5:54 am

that is so awesome! Congrats!

i def. would increase the amount that i pay in my debt, and save a lot more. i would also put a little aside a little more for us to have more fun with.


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